Positive vs Negative Cashflow - 2 of 10

Cashflow is a term that is used repeatedly in discussing real estate investing. Cashflow is also used to described streams of income from other sources, but primarily the term is used in real estate. Cashflow is simply the amount of gross revenue that the property or asset is producing for you. If you own a rental property and the renters pay $800 a month then that properties cashflow is....yep you guessed it $800 a month.

To break it down a bit more cashflow, again, while discussing real estate investing, is either termed as positive cashflow or negative cashflow. You can probably figure out what these two terms mean also. They are referring to the net income of a property or asset. So using the same example if you are receiving $800 a month in rent but your total mortgage plus taxes plus insurance plus maintenance payment is $1,000, then this property provides negative cashflow. Negative cashflow 99% of the time is a negative thing if your strategy is to buy and hold. On the other hand if your total payment is $600 a month then you have positive cashflow. Positive cashflow is the key to having a successful real estate investment.

I recently over heard a conversation about real estate investing. One man said to the other, "I don't know why but when it comes to real estate it is good to have negative cashflow." This person was obviously confused and me knowing the one real estate investment property this person has I know he was probably fed this line by the person who sold him the investment property. Don't let anyone ever tell you different. If you are planning on buying a property and holding it for a couple years than you absolutely positively do not want to be losing money every month.

This story goes to show how confusing real estate investing can be for some people. This otherwise prudent and inteligent man was duped into believing that it is good to lose money month after month after month. The only time this really pays off is when you have an incredibly high appreciation rate year after year but that possibility is a risky one to say the least.

The moral of the story is to always focus on positive cashflow. There are too many properties out there, especially now, that if bought correctly will have positive cashflow that you should never buy a property that has negative cashflow. It is as simple as that.

1.1 of 10 How to Make Money Wholesaling Real Estate

Like I explained in Part 1 "How to Wholesale Real Estate" making money through wholesaling has little risk and potential high rewards. Remember, you don't have to use your own money nor do you need to take on any large loans. You simply need to find the deal and find someone who wants the deal. Doing those two things will make you as much money as you want. You can do it over and over and over again. Find the deal and find somebody that wants the deal. Very simple.

Now there are two primary ways to make money through wholesaling. Both consist of doing the two things mentioned above but there is one major difference. One makes you a lot of money and the other doesn't. Wholesaling is also known as "Bird Dogging." More precisely, someone who is a Bird Dog is a wholesaler. Though a wholesaler is not necessarily a Bird Dog. A little confusing but let me explain.

A bird dog is someone who is more or less "hired" to find deals. An advanced real estate investor will have multiple bird dogs working for him in areas where they would like to purchase a property. Bird dogs get paid a fixed amount of money, and usually have negotiated this before they ever start looking for a property. Basically, an investor will promise to pay anywhere from $500 - $2,000 to the bird dog if the deal closes. Because a bird dog finds deals and gives them to someone who wants them they are essentially a wholesaler. Being a bird dog has it pros, but if you are going to do all that work then you should get paid accordingly, or at least I think so. Why settle for $500 when the investor turns around and makes $20,000, $30,000, or $50,000.

As a wholesaler you are becoming a true middle person by taking part of the margin just not a finder's fee. Let me break it down with an example. Let's say you find a pre forclosure you can buy for $100,000. After a some minor improvements ($5,000 worth) the property's resell value is $150,000. That makes the profit margin $100,000 + $5,000 and then subtract that from the $150,000 sell price. This means your profit margin would be $45,000. As a bird dog you would have already negotiated to make $1000 for providing the investor a deal like this. This means after paying you, the bird dog, the investor will make $44,000. Not bad for not having done anything except closing on the deal. Now as a true wholesaler let me show you how you can really profit.

Let's say you find the same property, do all the research, but instead of just turning it over to the investor you actually get the property under contract in you name at $100,000. You now have 30 days to find someone to buy the property. You already know the investor that was looking in that area so you call him/her up and say I have a property under contract it is worth $150,000 after $5,000 worth of improvements. I will assign the rights to this property to you for the price of .....you decide. It could be $110,000 or $115,000 or $120,000 leaving you with $10,000, $15,000 or even $20,000 in profit. The investor is still happy because they will make $25,000 - $30,000. The only difference, and its a big diference, is that instead of only making $1,000 you will make 10 times that. Very very powerful!

Now tell me. Why would anyone ever settle for just being a bird dog. You are already doing the same work...just get that property under contract and you will make some big dollars. No bird dogs...be a wholesaler through and through.

1 of 10 - How to Wholesale Real Estate*******

I feel like the first post in this series should be powerful, direct, and catchy. That is why Wholesaling is the first topic. It is one of the easiest ways to begin investing. Think about it...there is a way you can start investing in real estate without having to buy any properties, without having to get a loan, without having to use your own money, without having to quit your day job, and without a lot of risk. All it takes to become a wholesaler/bird dog is some knowledge of your market, some investor contacts, and some desire. It is as easy as that. I know it sounds too good too be true...just remember this is not an info commercial. I will not be asking you to buy anything. Just read on and learn.

First, what is wholesaling? When you think of wholesale you think of buying a product in bulk for a cheaper per unit price and then selling each unit individually at a higher price. You think of Costco, right? Well when it comes to real estate that is not the definition of wholesaling. You do not, and I repeat, do not need to buy properties in bulk and resale them. No. Don't even think about it. That is what developers do. Not you, a beginning investor. What is referred to as wholesaling in the real estate investor world is this. You will be a middle person, similar to wholesaling a product. You will find a deal, put it under contract, and then find an eager investor who will take over the contract for you. Sound complicated? It really isn't. Let's break it down.


1. Before you start ever looking for a deal you need to do two things, not necessarily in this order: join a real estate investment club and find a good title. A good title company is one that has experience working with investors. How do you know which title company is a good one? You go to your local investment club meeting and you start asking around. Talk to as many people as possible, asking as many questions as possible. You see, a great deal doesn't come around every day so when one does you need to be prepared to act on it. Being prepared consists of not only having a title company, but also a real estate agent, list of investors, and anything else you need to feel comfortable moving the deal along. Once you know what title company will work with you and you know some people who are looking to buy properties. Then you have to find a deal.

2. Finding a deal can be the most difficult and time consuming part of the process. There are many ways to find deals. You can read my other article about how to find deals in any city you live for more useful tips and hints. Do your homework and find a property that has a lot of equity and that will have positive cash flow. Later in this series you will learn more about positive cash flow. Without these two things no savvy investor will want to buy your property. Once you find the deal, the next step is to get it under contract.

3. Getting the property under contract solidifies your rights to buy or assign the property. As a wholesaler you will assign your rights to another investor who will buy the property. You will not have to buy the property unless you reall really really want to. Your goal is not to buy a property though. Your goal is to find someone who will take over the contract and close on the deal. You will only get paid if the deal closes. This means you need to provide the assignee (buyer) with all the information you can upfront so that there won't be any reason for the deal to follow out of escrow. Getting the deal under contract may take some of your own money, but it is completely negotiable. You can give as little as a dollar if the seller will accept that.


4. Find a buyer. Once you have the property under contract, by the way, the longer you have the better. Most contracts will say 30 days but that is negotiable as well. If you can get the seller to sign a contract that give you 45, 60 or even 90 days then the better for you because that is extra time you will have to find a legitimate buyer. Once you have the contract it is time to contact your potential buyers. The best way is to create a simple, clear, informational packet that you can email to all your contacts. By doing this you are saving everyone time and you appear to be more professional. You can also use Craigslist, the newspaper, or any other means to sell the property. Remember if you don't find a buyer or the buyer doesn't close on the property than you will not get paid.


5. Close the deal. Once you find a buyer who will take over the contract, you assign that person the rights to the contract. They are not the legal owners of what the contract offers. Your work isn't done though. You should do everything you can to help the buyer get the information they need to close on the property. Once the deal is closed the title company will get you paid. In post 2 of this series you will learn how you get paid. Just know that the money will come from directly from the title company. As long as the property closes you are guaranteed a check.

Sounds pretty simple, right? Well it is and it isn't. Once you get one done though it will get easier and easier. Pretty soon you will have built up enough capital (money) to start actually buying properties, if you want. I know a girl who is in college right now and made over $200,000 just by wholesaling. She has learned how to do it and so she just keeps on doing it. All it takes is a little desire and know how and you are on your way to make some good money as a beginning investor. Just think how many deals would you need to do to quit your day job? Probably not very many!

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